With your end consumers more likely to make a purchase with a few taps on their smartphone rather than going to a physical store, the way potential customers buy changed drastically.
Given that the global e-commerce market exceeded $6.3 trillion (£4.89 trillion) in 2023, it’s predicted that over 20% of international retail sales will happen online by the end of 2024.
This trend is only going to get bigger, with younger, more tech-savvy buyers more likely to shop online, as opposed to ringing numbers from their ‘black book’.
As a manufacturer, most of your resellers are brick-and-mortar retailers and also operate online. Therefore, your business has to sell your online, directly to your end consumer.
A recent Barclays survey of 500 UK manufacturers, over 70% are adopting Direct-to-Consumer (D2C) to diversify their revenue stream. In 2024, D2C sales in the UK are expected to exceed over £120 billion in sales.
In this article, we’ll explore what D2C is in the context of the manufacturing industry, why it’s becoming popular, look at the challenges and how to get started.
Direct-to-consumer (D2C) manufacturing is a business model in which a manufacturer produces and sells its product directly to the end consumer online.
Unlike the traditional business model, the D2C manufacturing model doesn’t involve selling through a supply chain that includes wholesalers, retailers, or a third-party marketplace.
With over 80% of B2B buyers preferring to place their orders through digital commerce, it comes as no surprise to see manufacturers warming to the idea of selling D2C, as Jack Williams, Commercial Director at Axon Garside, has highlighted.
“A lot of B2B manufacturing companies are keen on the idea of selling directly to the consumer. One example that comes to mind is a client who sells renewable energy products. They typically sell their product through wholesalers and try to promote their product to installers.
“But now, instead of selling to installers, they’re shifting their focus to sell directly to the homeowner, changing the course of demand from their supply chain.”
The main benefit of using D2C manufacturing is that, by cutting out the middleman, you increase your profit margin. As one report by KPMG highlighted, manufacturers can gain up to 15% of margin from wholesalers and up to 40% from retailers.
In addition, by adopting D2C alongside your traditional revenue generation methods, you diversify your sales channels.
But, as Jack highlighted, the biggest advantage of going D2C is that you’re not restricted by external factors when it comes to determining your pricing strategy.
“When selling through the supply chain, wholesalers and distributors hold the power. Therefore, they can negotiate and bargain with you on how much they can actually buy your product for. Whereas, if you're selling D2C, you’re able to command the prices of your product.”
Jack also added that most wholesalers and distributors will stock competitor products as well. Your consumers always want value for money, and there’s no stopping third-party sellers from offering an alternative product to yours.
“By selling D2C, you can influence and create that advocacy around your product directly to ensure your customers keep coming back to you for more.”
Besides the significant advantage of commanding the price, Axon Garside’s Managing Director Ian Guiver highlighted how the COVID-19 pandemic greatly impacted consumer behaviour.
“The pandemic changed many things for various sectors, but it hugely impacted the manufacturing industry. Manufacturers heavily relied on their third-party sellers who operated brick-and-mortar stores and sold face-to-face. The pandemic changed that because it was impossible to do face-to-face selling.”
D2C manufacturing brings many advantages, but there are several challenges to keep in mind:
If you’re considering using D2C manufacturing at your company, the last thing you want to do is disrupt existing relations with your current supply chain.
According to a report by the Boston Consulting Group (BCG), 38% of retailers consider D2C manufacturing to be a huge concern. On top of that, the same report revealed that 44% of retailers believe manufacturers switching to D2C will make things worse for their industry.
When exploring the D2C route, be open and transparent with the key third-party resellers of your products.
To mitigate the risk of backlash, start by selling a specific product range that’s not stocked by your resellers to avoid direct competition.
You also need to consider your website’s user journey, as explained by Ian.
“If you're going to continue to sell through distributors, one of the challenges is how do you manage your relationship with your supply chain? From a user experience (UX) point of view, you need to determine who is coming to your website. Is it a distributor that's coming to you? Is it the customer of a distributor? Is it somebody who's a direct customer that's never bought off a distributor?”
To ensure your customers are categorised correctly, design your website so they’re asked to confirm if they’re an end consumer or distributor when they visit. This helps you separate and manage both buyer journeys from the onset.
With online shopping now the norm, you need to think about how you deliver a compelling UX and present your products.
While setting up an e-commerce site for your D2C offering should be the first port of call, it’s equally important to ensure your online presence can meet your consumer expectations.
“When it comes to consumer expectations for your D2C e-commerce site, here are some things you need to keep in mind.
Is your website easy to navigate for your end consumers? Does your site have all the information your consumers need? Is your e-commerce platform relatively easy to use for your team and can it deal with the subtleties and nuances of your product?” Ian said.
It’s important to keep your consumers engaged during the entire sales process. Thankfully, as Ian stated, you don’t need to hire salespeople to chase your D2C customers to keep them captivated since there are other mediums you can take advantage of.
“In the industrial space, your customers want to be engaged during the entire sales process. Rather than getting your sales reps to nurture your D2C leads, you can direct them to video presentations, video conferences and demonstrations. This strategy is often utilised in the B2C sector to good effect.”
Besides delivering a positive experience to your end consumers before they make a purchase, you also need to provide excellent service post-sales.
A successful D2C strategy is dependent on building a team dedicated to handling queries coming from your prospects. This should be supported by processes that align with your CRM to swiftly resolve queries.
“When people get used to buying from you online, they’ll start having expectations of customer support. Your consumers will start to get very stroppy if they can't find anyone to talk to,” Ian said.
“For most manufacturers who have had distributors deal with consumer queries, they’ll need to put some resources in place. Again, technology can help here with the likes of chatbots and FAQ pages. Both of which are relatively underused in the industrial space at the moment.”
As part of the supply chain model, you’ll work alongside your logistic partners who distribute your products to wholesalers, retailers and other third-party resellers.
With D2C, on the other hand, you’re dispatching and delivering your products directly to the customer rather than a business. For this, you’ll need to create a separate distribution arm that caters for D2C or partner with a courier like UPS, Yodel or Royal Mail.
However, there’s no one-size-fits-all pricing structure for D2C distribution because there are so many variables to keep in mind. This includes weight, size and the location or country that you’re delivering to.
To assist, Jack advised looking into delivery estimation tools that can be integrated into your CRM.
“There are delivery estimation tools that can help you calculate certain prices based on the location and the weight and the size of the order. One thing you need to keep in mind is when shipping your products abroad, the overall cost will become more complicated with import taxes and duty charges.”
Despite its challenges, D2C selling isn’t an impossible feat for B2B manufacturers. Here, we outline four key steps to help begin your D2C journey:
When you’ve little or no exposure to your end consumer, it’s difficult to paint a clear picture of their needs and requirements. This is why you need to get as much data about your end consumer as possible.
If you have well-established relationships with your wholesalers and distributors, it’s worth looking into the possibility of negotiating a data-sharing program with them. There are other methods of collating data to explore, which include conducting customer interviews and surveys.
Then, consolidate your information into a CRM system to reduce the likelihood of data silos.
“When you’ve gathered as much information about your end consumer, you need to organise your data and consolidate it into one centralised system. This will help you understand who is buying from you and why they bought your products in the first place. Your data will equip you with solid foundational knowledge as to how you’re going to market your product,” Jack said.
With your end consumers preferring to shop online, you need to bolt on an e-commerce store using either Shopify, Magento or WooCommerce to your existing online site.
Alternatively, you can set up online stores on social media platforms like Facebook, Instagram, and Google. You can also explore Amazon as an option when selling using D2C methods.
When researching what channel(s) you’d like to use for selling D2C, be sure to take a close look at any fees which will take a chunk from your profit margins. The other thing you need to look at is the ease of use; you don’t want to work with a system that's hard to use for your team.
But one thing to be very considerate of is that when introducing a new platform to your manufacturing business, you need to allocate additional resources to manage the system, as Jack pointed out.
“Traditionally, the manufacturing sector has been one that may not have the skills in-house to do online marketing or at least build a web store from scratch. There, you need to think about who’ll be developing the platform and who’ll manage it.”
Your Enterprise Resource Planning (ERP) system sits at the core of your manufacturing business. Whether you use Sage 200, Netsuite or a bespoke SAP, you need your e-commerce platform to seamlessly integrate with your ERP without causing major disruptions.
“Both your e-commerce store and CRM should integrate with your ERP. This is important for manufacturers. Your ERP is responsible for your finances, inventory and even your manufacturing processes,” Jack said.
“Seamless integration between your e-commerce platform and ERP ensures you’re on top of your stock levels, shipping charges, and provides a clear overview of how the money is coming through the door.”
To make this transition easier, it’s worth looking into an all-in-one solution such as HubSpot, which is highly integrative and features CRM, marketing, automation and reporting functionality out-of-the-box. Most recently, HubSpot announced they'll be launching a commerce functionality.
Once you’ve opened your e-commerce store and successfully linked it with your CRM and data infrastructure, you need to generate demand around your product.
For the short term, you can leverage your data to do targeted campaigns via paid ads on social media and sponsored search results. This helps you gain that all-important initial exposure and drive traffic to your e-commerce store.
For the long term, you need to think about how you’re going to attract potential buyers to your D2C offering. This is where you need to utilise inbound marketing which involves producing content that helps your prospective consumer identify their challenge, how they solve their problem and eventually, direct them to your product.
A well-executed inbound marketing campaign will help you gain new leads and guide them down the sales funnel via a combination of engaging content and automation.
“Buyers are now researching potential new suppliers online. This requires SEO and requires you to be active on social media. But, it also means that you can use content to educate those buyers and help them to understand how your products are relevant to their problems.” said Ian.
With consumer behaviour changing, you need to consider diversifying your sales strategy.
Implementing a D2C sales pipeline will open up a new revenue stream for your manufacturing business. You can start small by introducing a select range of products.
However, be sure to be considerate of the challenges involved. The last thing you want is to damage your existing relations within your supply chain.
The main thing you need to keep in mind, though, is that your D2C sales strategy should supplement your existing revenue streams, not replace them altogether.